In Business Model, Internet Access, Mobile, Spectrum

The cost of acquiring spectrum in the recent Indian mobile spectrum auction were high enough that Bharti Airtel, Idea Cellular and Reliance Communications may take a sharp hit to earnings in 2016 and 2017, driven by interest charges on borrowed money spent to acquire spectrum.

And most observers say retail end user costs are certain to rise, as the capital investment has to be recovered.

Bharti Airtel’s net profit could drop eight percent, starting in April 2016, US brokerage Morgan Stanley estimated. that would be mild, compared to what could happen at Idea Cellular and Reliance Communications.

Idea Cellular could see earnings before interest and depreciation drop 27 percent, while Reliance sees a plunge of 26 percent.

To put the auction spending in perspective, the sums expended are equal to more than 90 percent of its annual revenue.

Presumably, the higher debt loads and compressed earnings will make network investments tougher.

Ultimately, customers pay for everything, so effective retail prices are going to climb. That arguably is unhelpful for those aiming to rapidly expand mobile Internet services.

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